Normal Loss, Abnormal Loss

Normal Loss:

Normal loss means that loss which is inherent in the processing operations. It can be expected or anticipated in advance i.e. at the time of estimation.

Accounting Treatment:

The cost of normal loss is considered as part of the cost of production in which it occurs. If normal loss units have any realisable scrap value, the process account is f credited by that amount. If there is no abnormal gain, then there is no necessity to maintain a separate account for normal loss.

Journal Entry:

(i) Normal Loss A/c …Dr.

To Process A/c

(ii) Cost Ledger Control A/c …Dr.

(Scrap value) To Normal Loss

Abnormal Loss:

Abnormal loss means that loss which is caused by unexpected or abnormal conditions such as accident, machine breakdown, substandard material etc. From accounting point of view we can say that abnormal loss is that loss which occurred over and above normal loss. These losses are segregated from process costs and investigated to prevent their occurrence in future.

Process account is to be credited by abnormal loss account with cost of material, labour and overhead equivalent to good units and the loss due to abnormal is transferred to Costing Profit and Loss Account.

Journal Entries:

(i) Abnormal Loss A/c …Dr.

To Process A/c

(ii) Cost Ledger Control A/c …Dr. (Scrap value)

Costing Profit & Loss A/c …Dr.

To Abnormal Loss

Abnormal Gain:

If the actual loss of a Process is less than that of expected loss then the difference between the two will be treated as abnormal gain. In another way we can define it as the difference between actual production and expected production.

Accounting Treatment:

The value of abnormal gain is transferred to the debit side of the relevant process and ultimately closed by crediting it to the Costing Profit and Loss Account.

Journal Entries:

(i) Process A/c ..Dr.

To Abnormal Gain

(ii) Abnormal Gain A/c ..Dr.

To Normal Loss

To Costing Profit & Loss A/c